Employee Output Response to Stock Market Wealth Shocks

Abstract

This paper uses individual-level data linking stock investments with work performance to examine how changes in stock market wealth affect worker output. We document that a 10% increase in monthly income from stock market investments is associated with a decrease of 3.8% in the same investor’s next-month work output. The negative output response is not driven by concurrent economic conditions and is unexplained by investor-specific liquidity needs. Consistent with the reference dependence interpretation, the response is short-lived and the effect is stronger when the total income has reached a reference income. Overall, our results highlight a novel channel of transmitting stock market fluctuation through labor supply.

Keywords: Stock Investment Return, Stock Market Wealth, Consumption, Worker Output, Work Performance, Labor Supply, Reference Dependence, Household Finance

JEL Classification: D14, G12, G51, J22, J31